The Retirement Crisis

One of the annoying aspects of our broken electoral system is that issues of real importance are often ignored. Our elections are a money driven media circus of personal attacks, misleading sound bites, and ideological slogans. The real problems facing citizens and the country are not discussed in any rational, substantive way. Retirement security is one of these issues. Yes, there was some mention of Social Security in the last election. The misleading, party line talking points were reiterated during the “debates.” But the broader issue of retirement security for everyone was not addressed.

Being able to retire with dignity and financial independence was once part of the American Dream. But retirement security is disappearing for many Americans. Many people will be financially unable to retire. They will have to work longer, or will live in poverty during their “golden years.” This decline in secure, adequate income for older persons affects us all. It will have a negative impact on the economy especially in states such as Wisconsin and Minnesota which have significant retiree populations.

Statistics on this topic are all over the Internet. The numbers can be confusing and seemingly contradictory because they sometimes measure different things. But the bottom line is many people will not have enough assets or income at retirement to maintain their standard of living. Many will see significant declines in their life styles when they can no longer work. Many people will be living below the poverty line. Currently about one third of workers have no retirement program at work. People with a plan often do not participate for various reasons. Many people will only have Social Security as a retirement income source. For many more Social Security will be 50% or more of their income. Experts have warned of a coming retirement security crisis.

There are many contributing factors to this crisis. Declining wages, exporting of middle class jobs, increasing healthcare costs, inadequate individual savings, low interest rates on savings, and poor individual financial decisions are all factors. But a major reason is that since 1980, there has been a profound shift in the way retirement programs work. Guaranteed, defined benefit company pensions have largely been replaced with individual, voluntary defined contribution retirement savings plans like 401(k)s. Most private sector employers have switched to these individual 401(k) style retirement programs. Basically the responsibility for adequate retirement savings changed from employers to employees. This is good for employers because they have lower, predictable costs and no risk. But it has not been good for most workers.

Although making people more responsible for their own retirement sounds reasonable (and is ideologically more acceptable to free market conservatives) it doesn’t work well for a number of reasons. Most people simply don’t save enough in voluntary retirement plans. Many people do not earn enough money to make the needed contributions to their retirement savings. About half or us are in poverty, or are “working poor,” and barely making it financially. When people do save they don’t manage their accounts well. They don’t have the knowledge or time to effectively manage individual investments even using professionally manged mutual funds. In addition market volatility and administrative fees eat up gains. Individual 401(k) accounts do not share risk, take advantage of economies of scale, or provide guaranteed incomes like traditional defined benefit pension programs. Research has shown that individuals in 401(k) type plans get lower investment returns, pay higher management fees, and have dramatically less at retirement than with employer managed defined benefit retirement plans.

Medical costs are a significant issue for seniors. Medicare is the backbone of financial security for most retirees. Paul Ryan advocates replacing Medicare with a voucher program. This would result in people having to buy insurance in the private market. We all know how well that works for individuals! Even large groups can’t deal with rising medical insurance costs. But the Republicans still cling to the “free market” mythology that individuals can do it better on their own. It is very likely that the vouchers will not cover the costs of private insurance. Seniors will have to make up the difference further hurting their retirement security. It should be obvious that the “free market” is not a solution for senior citizen medical care. Insurance companies do not want old sick people! Medicare was created because of the failure of the insurance industry to provide affordable insurance for older people.

There are solutions that could create secure retirement incomes for everyone. These solutions are feasible and affordable. There are successful models for what can work. One is “Guaranteed Retirement Accounts” similar to traditional company pensions but would cover all workers. People would contribute 5% of their income to a national program. These contributions would be invested in the “markets” and the workers would receive a guaranteed rate of return. The Social Security Administration (which operates at a 2% overhead) would manage the program. Estimates are that this program would provide workers with a guaranteed, inflation adjusted, retirement income that, combined with Social Security, would replace 70% of pre-retirement income. Learn more about this idea at

In Wisconsin legislation has been introduced to study a similar idea. Senator David Hanson (D, Green Bay) and Representative Eric Gingrich (D, Green Bay) sponsored a bill last year to to study creating a private sector program modeled after the highly successful Wisconsin Retirement System (WRS) for public employees. Rated number one in the country, WRS is a defined benefit pension program serving 572,000 public employees and retirees. WRS uses employer and employee contributions plus investment earnings to fund the program. WRS has about $90 billion in assets and provides an average $23,000 per year retirement income. Taxpayers DO NOT pay for Wisconsin public employee pensions.

Like all the problems we face as a nation, there are solutions that could work. The question is, do we have the political will, foresight, and sense of community to do what is good for everyone? Unfortunately, with Republicans completely in charge, any “solutions” to retirement problems are unlikely to be good for the average person.